The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
FYI, I’m out of the office tomorrow and markets are closed on Friday. Next Recap will be Monday.
The Kevin Warsh Fed
Stocks treaded water during the day, waiting for the Fed. The Yield curve flattened a bit ahead of the decision. The Dollar was a touch stronger, precious metals too. The crude curve twisted significantly, with a small increase in the front and large drops further out. When the Fed decision and statement released, it hit the markets like a hammer. Stocks dropped, rates climbed, the Dollar strengthened, and precious metals fell. The dot plot showed some members projecting rate *hikes* over the rest of the year. There was no policy change but the dot plot change was the surprise the market hadn’t expected. Markets recovered some during the press conference but fell back, and then some, afterward.
The new Fed Chair made notable changes to the way the Fed communicates. The Fed statement was *much* shorter than under Powell. Whether this is better or worse remains to be seen. It’s so short, I’m just going to paste it here. You decide whether it’s short and sweet or short and lacking.
“The Federal Open Market Committee approved the following statement for release by a 12 – 0 vote:
The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate. The Committee reaffirmed its policy of maintaining ample reserves in the banking system.
Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.
Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.”
The press conference was significantly different as well. Forward guidance is purposefully removed from Fed communications now. The implied forward guidance of the dot plot was addressed in the press conference and Warsh essentially said, it’s subject to significant change so don’t read into it. He also suggested that future dot plots may not be part of future Fed communications. The Fed is organizing various task forces to study and recommend all kinds of changes to the way the Fed works and communicates.
What does this all mean? We don’t have details to analyze but it’s obvious that the Fed is re-examining a lot of how it works and how it communicates. The markets are presently *assuming* that this will be hawkish. Is this a knee jerk reaction, a proper assessment of short-term policy, or a projection of a systemic change?
We wait. How will the changes the Fed will make, actually change things?
We shall see, just not right away. It’s six weeks until the next FOMC decision.
See you Monday, have a great weekend, Happy Father’s Day.
-Mike
Visdom Market Commentary
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